Tax on interest

The Personal Savings Allowance (PSA) and tax on interest

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The Personal Savings Allowance

On 6 April 2016, HMRC introduced the Personal Savings Allowance (PSA). This means you could earn up to £1,000 of interest per tax year on your non-ISA savings accounts before having to pay tax on your interest.

The PSA extends to other interest-bearing products, such as current accounts. Interest from cash ISAs doesn't count towards your PSA, as it is already tax-free.

The amount of your Personal Savings Allowance depends on your income tax rate:

If you're a basic rate taxpayer, you can earn up to £1,000 of interest without paying tax.

If you're a higher-rate taxpayer, you can earn up to £500 of interest without paying tax.

If you're an additional rate taxpayer (45%), you don't get an allowance.

Registering for gross interest: forms R85, IF17 and R105

From 6 April 2016, the interest on your non-ISA savings is automatically paid tax-free, so you don't need to fill in forms to register or de-register for gross interest.

This means that forms R85, IF17 and R105 are now obsolete.

How does it affect my savings?

The PSA doesn't just apply to savings accounts. It relates to any interest earned, so the rules extend to other products, including interest-bearing current accounts. Interest earned on cash ISAs doesn't count towards your PSA, because it's already tax-free.

The government also introduced new rules to support the PSA, so banks and building societies are no longer deducting income tax from interest earned on savings and current accounts.

Regardless of when you opened your account, if the interest is paid after 6 April, you will receive it without tax deducted. This also applies when closing an account, where interest is added at the point of closure.

Do I need to do anything?

You don't need do anything to receive interest without tax deducted, this happens automatically.

If the interest you earn on accounts you hold with Nationwide and any other provider(s) is more than your PSA, tax may become due and will need to be paid to HMRC. HMRC will normally collect tax by changing your tax code or through self assessment. See the HMRC Guidance on PSA for more information.

Find out more about the PSA

Further information

If you want to see the total interest you've earned on your account, you can request a Section 975 tax certificate for the current year, or any of the previous 6 tax years.

For the tax year 2016/17 and subsequent years, Nationwide will replace Section 975 certificates with Interest Certificates. If you need an Interest Certificate, or a Section 975 certificate for a previous tax year, you can request it in branch, through the Internet Bank or by calling 0800 30 20 11.

Find out more

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